Authors : Sebuhuzu Gisanabagabo and Harold Ngalawa
Abstract: The objective of this study was to measure the efficiency of commercial banks in Rwanda for the period 2007-2013. Measuring banks’ efficiency provides information on the financial healthiness of such institutions with respect to translating limited inputs into financial services and products which in turn can be used to improve their efficiency and propel also the economy. The study applied a cost stochastic frontier analysis on data collected on seven commercial banks and found a mean cost efficiency of 88.56%. This implies that banks jointly would have utilized only 88.56% of the utilized resources to achieve the same output that they produced, suggesting that 11.44% of the resources used were wasted. The study found further that the foreign bank owned have significantly improved efficiency while shorter tenure of banks’ Chief Executive Officer (CEO) worsened the efficiency of banks. To achieve higher efficiency, banks in Rwanda should commit to stabilise the tenure of CEOs in office and continuously keep up with banking update technology.
Sebuhuzu Gisanabagabo and Harold Ngalawa, 2016. Measuring Commercial Banks’ Efficiency in Rwanda: A Stochastic Frontier Analysis. International Business Management, 10: 5777-5786.